South Indian Bank Q3FY17 Concall Summary

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Performance Overview

South Indian Bank Q3FY17 P&L
SIB Loan Book Composition Q3FY17
  • Total business grew by 15% mainly driven by deposits in CASA . Bank will deploy this carefully.
  • Deposits increased by 19% YOY. 
  • CASA has grown by 33% YOY. NRI deposits has grown 20% yoy.
  • Total advances increased by 11.41% yoy
  • Of the total advances, corporate loans are 39.8%, SME 23.4%, Retail 20.1%, Agri 13%, gold 2.9%.
  • NIM stands at 2.72% on standalone basis.
  • Overall growth of 15% yoy in retail portfolio excluding gold, 13% in agri, sme 17%, home loans including LAP 33%, auto 29%.
  • Cost to income ratio has come down by255 basis points QOQ to 48.5%
  • Other income
    • Other income stood at Rs. 259 Crore for the current quarter including profit on sale of investment of Rs. 127 Crore. Other contributions are from transaction income 45 Cr, tech income 22 Cr and forex 8 Cr
    • Increase in the other income: Treasury component includes 50 Crore from HTM profit booking. This could be one time as sale amount may not be available next quarter. IT refund and selling of priority sector loans constitute the rest of the other income
South Indian Bank Q3FY17 Other Income
  • Fee income has come down: It will come back and most probably increase from here due to increased card usage.
  • Tier 1 does not include 9M profit but includes the revaluation reserve
  • Growth in Agri and sme together is flat. there is growth in Home loans and LAP. Retail, except gold has shown growth
  • No major cases of Balance Transfer cases in the quarter
  • Gold Loan total portfolio 4154 Cr vs 3979 Cr YOY, and 4265 Cr as on Sep 2016
  • Employee provision on retirement benefit for the entire year has been done
South Indian Bank Key Ratios Q3FY17

Other Updates

  • Bank has received FIEO expert excellence award for 2014 -15 in the best financial institution category in southern region
  • The Bank has also received approval from RBI for opening an office in Dubai,  this will help in increasing theNRI base.
  • Recently introduced mobile based application. The application has also been chosen as winner in the financial innovation 2017 by banking frontiers.
  • Technology division has secured ISO certification during the quarter .
  • Adopting strategy for expanding retail business strengthening SME, enhancing asset quality and improving share of other income

Asset Quality

  • Continuously enhancing the asset quality is the main focus of the Bank . Restructured Book decreased by 42%  yoy mainly due to resolution of issues relating to power discom under UDAY scheme.
  • Gross NPA of the company stood at 3.98% Flat on qoq basis while net NPA at 2.52% vs 2.77% QOQ
  • Expect that Q4 would see intense activity in resolution of stress Loan book.
  • Capital adequacy ratio stood at 11.05%
  • Bank is staying away from large size corporate loans. But Corporate loans from 25 to 100 crore with adequate safety will continue to be focus area of the company
  • Tamil Nadu Government has joined UDAY Programme, so that will help upgrade some stressed accounts
  • During the quarter pre provisioning operating profit significantly increased by 43%.  YOY .  Provision for this quarter during the period increased by 64.51% mainly on account of stressed corporate portfolio.
  • In last Quarter, bank mentioned about one account of 1.2 Billion, which might get added in the SDR, Bank has added that account in Q3FY17
South Indian Bank NPA Movement Q3FY17
  • Breakup in reduction in NPA this Quarter:
  • Fresh NPA 196 Cr
  • Recovery 26 Cr
  • ARC Sale of 49 Cr
  • Write off of 41 Cr
  • Upgrades of 39 Cr
  • Total reduction in Gross NPA -155 Cr
  • Gross NPA position is 1,787 Cr
  • 6000 Crore of accounts have gone in SDR. All are above 100 Cr
  • The major NPA and Stressed assets are in this 6000 Crore and not in remaining loan book
  • Not considering Relaxation in NPA norms by RBI, NPA would be higher by 80 Crores(all in Retail Portfolio}
  • Agricultural slippages moving up
    • Slippages in agricultural loans usually occur when some relatively larger account become stressed,  This getting evened out
    • Drought in Kerala - The company does not expect slippage issues too much in agri. There is lower monsoon this year. In Tamilnadu monsoon was fine. In some of the regions, there might be some slippages,  but no significant impact

Update of Fraud Case

  • One account because of problems associated with borrower abroad. The exposure is secured by high quality building. But on a conservative basis, management has classified it as fraud
  • Amount of expected recovery: expect significant recovery. almost all is land and buildings. expect 25% haircut on the value on total exposure of roughly 193 Crore

Rights Issue

  • Bank will raise Fund through right issue. Ratio 1:3. Share price Rs 14 /sh
  • Tier 1 Capital after Rights Issue: The approx value of Right issue is 630 Crore and it is not included this in calculating the CAR
  • Final decision will be taken shortly

Branch expansion

  • The bank will have more branches in areas where existing branches are showing good growth

CASA strategy

  • Average ticket size in housing loans is 27 Lakhs. Yield stands low at 10%
  • Core Tier 1 Capital Ratio is 9.39
  • 39% is total corporate book (anything above 25 Crore)

Effect of Demonetization

  • From, sub 20%, bank has moved up to 22-23% of deposit as a percentage CASA. Due to Demonetization, it has reached at 26%. Bank believes that this deposit will remain or get converted into FD
  • Also, recovery got affected in this Quarter due to managing other aspects relating to demonetization
  • Average daily online transactions doubled post demonetiization
  • Disbursements got affected yoy during demonetization: it affected in this Q3FY17. The disbursements are now back on track. Bank is fully loaded with proposal sanctions
  • Gold Loan Portfolio has gone down: The overall trend is positive and due to demonetization, it was affected in this Quarter . In the last few days, there is a pickup.
  • Borrowers paying by old notes: Recoveries are just the same. Bank is not finding any increase in recoveries
  • Except in the cases of small retail accounts, demonetization hasn't contributed to NPA.

Employee expenses

  • Employee Expenses will be roughly be same in the Q4
  • Employee count will increase in future. Also there will be 10-12% Provision to be provided for wage hike

Outlook on PCR Level

  • PCR Level is now at 50.17%. The company is to reach 70% at the earliest
  • 70% PCR is expected by 2020 with lower corporate portfolio and higher retail portfolio
  • Home loans and LAP growth rate is around 30% for target

NRI Business

  • NRE FD - Rs 2888 Cr vs 2582 in Q2 FY 16
  • NRO Rs 482 Cr VS Rs 432 Cr in Q2 FY 16
  • FCNR Rs 1288 C vs Rs 1234 Cr in Q2 FY 16
  • NRI normal deposit is 11191 vs 10777 in Q2 FY 16
  • NRO time deposit is 469 vs 451 in Q2 FY 16
  • Peak rate is 7.15% on these deposits

 Corporate and wholesale banking segmental profitability

  • Corporate book continues to be loss making due to elevated provision
  • Profitability for this Quarter is higher due to relatively higher other income which may not be there in the subsequent Quarters, but elevated provisions will be there

 Impact of high MCLR cuts by large Banks

  • Growth @ 15% is doable given because of the relatively limited portfolio. And with CASA improving, there will be postive effect on NIM and itwill compensate for the cuts
  • Total SOR Book is 1170 Cr.
  • This Quarter, there was interest reversal of 38 Cr based on guidance by RBI on SOR books. so Cumulative NIM got impacted by 8 Bps


  • Management expects a Growth rate of 15-17 % in 2017-18
  • Total stressed book is only going to decrease fromhere
  • NIM Guidance2.75% now, targeting 2.75-2.80%
  • Credit Cost may continue almost at the same level now
  • The bank is focusing on retail so more employees are needed. Going forward, there will be more hiring